Sandy’s economic, trading and investing impact

First things first. My thoughts and prayers go out to all those affected by Hurricane Sandy. As human beings, that is the first thing on all our minds and hearts. As professionals, we have to analyze what it means to our portfolios, if anything.

There’s an old economic theorem about the “Broken Window” and it essentially explains how breaking your own house’s windows doesn’t actually create any economic benefit even though you’re going to be buying a new window, which creates demand for glass, metal, wood, installation services, and what not. Because when all is said and done, without some repeatable demand from new housing, you’re back where you started and those guys have to hope you’re willing to break your own window again to keep their businesses going.

Hurricane Sandy is not a “Broken Window” phenomenon. Yes, it was destructive and that is always a negative. And yes, there’s been a few billion dollars worth of retail and other business lost over the last few days. But that demand will be right back where it was and will have some pent up excess to it for the next few weeks after life returns back to some semblance of normalcy for the affected parts of the country. And there will indeed be tens of billions, probably more than a hundred billion dollars, worth of new demand for construction materials, services, supplies, workers, and so on for the next couple years as a result of the rebuilding process that we’re about to undertake.

Most of that money will ultimately come from the Federal government and/or the Too-Big-Too-Fail government-sponsored banks like JP Morgan (JPM), Bank of America (BAC), Goldman (GS), et al, and is ultimately borrowed from our future generations of taxpayers as it will ultimately add to the deficit side of the government’s ledger. However, there’s very little near- or mid-term costs to that new spending because the government and the TBTF banks have the ability for the next couple years or so to borrow that money for free what with interest rates artificially set at 0%. The pain from that added additional debt to the Federal deficit won’t be felt until interest rates rise whenever that may be. And as I’ve written before, when interest rates for the U.S. government finally rise back even just to where they were 10 years ago, which were historic lows at the time, we’ll probably need to be long gone from our net long positioning anyway.

And the entire supply chain from telecom fiber optic cables (Corning GLW, and JDSU and others) to new switches (Ciena CIEN, Cisco CSCO and others) to yes, home re-building (Home Depot HD) will see incremental demand from the rebuild. Maybe enough to move the needle in some specific stock’s cases. That means more homework, by the way.

Thus, the economic, trading and investing effects from Hurricane Sandy are, if anything, a net positive for the near- and mid-terms and are a net negative for future generations (although at this point $100 billion of new borrowing only adds 0.07% to the Republican/Democrat Regime’s deficit of $14 trillion and counting).

As for trading, I’m going to sell about 15% of my Lender Processing Services
/quotes/zigman/516176/quotes/nls/lpsLPS puts, which we’d been scaling into recently and are now up much more than double after that stock dropped big time today post earnings. Nothing really new in the earnings report as far as our thesis of this thing being an eventual scapegoat for the mortgage-title robosigning debacle, but the topline was light and the bulls want to see this thing grow faster.

Baidu
/quotes/zigman/97715/quotes/nls/biduBIDU Bidu’s down 5% after its earnings report as the bears leap on the ol’ “slowing growth” mantra. Steady as she goes there too, I’ll look to finally scale into another tranche if and when she gets closer to $100 and not before. Patience is one of the most important traits that I can practice and write about.

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